CFE MODULE 3 (MULTIPLE OPTIONS TEST QUESTIONS)

CFE MODULE 3 - FRAUD PREVENTION AND DETERRENCE

The two primary strategies to control corporate criminal behavior are:

Compliance and deterrence

Which of the following pieces of information should NOT be emphasized in an employee reporting program?

The reporting employee's name must be disclosed to management

According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), internal control is "a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

TRUE

The Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Enterprise Risk Management—Integrating with Strategy and Performance is composed of a set of principles organized into five interrelated components. Communication, as part of the information, communication, and reporting component, is defined as an organization's:

Continual, iterative process of obtaining information and sharing it throughout the entity

Which of the following options is a principle concerning the information and communication component of the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Internal Control—Integrated Framework (the Framework)?

All of the above

According to ACFE research, which of the three major categories of occupational fraud has the highest median loss?

Financial statement fraud

According to ACFE research, which of the three major categories of occupational fraud is the MOST COMMON?

Asset misappropriation

Which of the following statements BEST exemplifies the rationalization component of the Fraud Triangle?

Management is dishonest, so why shouldn t I be?

Under the ACFE Code of Professional Ethics, fraud examiners are strictly prohibited from expressing opinions on technical matters.

FALSE

Failing to properly supervise all assistants and others who are delegated work on a fraud examination engagement is a violation of the ACFE Code of Professional Ethics.

TRUE

During an admission-seeking interview of a fraud suspect, Gary, a Certified Fraud Examiner (CFE), accuses the suspect of having committed a fraud. Gary s accusation violates the ACFE Code of Professional Ethics.

FALSE

To be in compliance with the ACFE Code of Professional Ethics, fraud examiners must have an expert level of skill and knowledge for every circumstance that might be encountered in a fraud examination.

FALSE

Management must assign both a quantitative and qualitative measure to its risk appetite so that it can accurately measure the fraud risk management program s effectiveness.

FALSE

To ensure the independence of the team members, a consultant or another external party must conduct the fraud risk assessment.

FALSE

When deciding on techniques to use as part of a fraud risk assessment, the assessment team should consider what methods are already commonly and effectively used throughout the organization.

TRUE

When identifying the inherent fraud risks that could apply to the organization, the fraud risk assessment team should specifically discuss the potential for management to override controls, as well as the risk of regulatory and legal misconduct.

TRUE

There are specific anti-retaliation laws in every country that protect whistleblowers against adverse action for reporting misconduct in the workplace.

FALSE

In countries with limited legal protections for whistleblowers, employment laws might be used as a framework to protect employees when they encounter retaliation for reporting workplace misconduct.

TRUE

The fraud risk assessment should be formally incorporated into the annual audit planning process.

TRUE

When gathering information as part of a fraud risk assessment, both surveys and anonymous feedback mechanisms provide an effective way to conduct candid one-on-one conversations with employees

FALSE

Designating an area as having a high fraud risk and putting the related activity under increased scrutiny can deter potential fraudsters by increasing their perception of detection.

TRUE

In response to a risk identified during a fraud risk assessment, management decides to eliminate an asset or discontinue an activity because the control measures required to protect the organization against the identified threat are too expensive. This response is known as:

Avoiding the risk

Which of the following techniques for gathering information during a fraud risk assessment involves obtaining individuals’ responses through a formal electronic or paper questionnaire?

Surveys

In response to a risk identified during a fraud risk assessment, management chooses to accept the risk rather than implement any responsive measures. This approach is known as:

Assuming the risk

During a fraud risk assessment, the assessment team should consider:

All of the above

Following the conclusion of the fraud risk assessment process, management should:

All of the above

The fraud risk assessment team should consider both qualitative and quantitative factors when assessing the organization's fraud risks.

TRUE

Which of the following factors influences the level of fraud risk encountered by an organization?

All of the above

Detective anti-fraud controls include all the following EXCEPT:

Hiring policies and procedures

The risk that an organization might be victimized by an individual who is able to combine the three elements of the Fraud Triangle is called _______________.

Fraud risk

Theft of competitor trade secrets, anti-competitive practices, insider trading, and trade and customs regulations in areas of import and export are all fraud risks pertaining to:

Regulatory and legal misconduct

Which of the following is TRUE about the fraud risk assessment process?

All of the above

Preventive anti-fraud controls include all the following EXCEPT:

Continuous audit techniques

A fraud risk assessment report should contain a detailed, comprehensive list of every assessment finding and all suggested responses so that management can address each issue within the company, no matter how small.

FALSE

Paying bribes to procure business and receiving illegal gratuities are considered risks pertaining to which category of fraud?

Corruption

The fraud risk assessment should include input from both management and auditors to ensure a holistic view of the organization's risks, but it should exclude all others to maintain the independence and objectivity of the assessment process.

FALSE

An effective system of anti-fraud controls:

All of the above

Which of the following is an objective of anti-fraud controls?

To reduce the residual fraud risk to a level that is significantly lower than the inherent fraud risk

The success of the fraud risk assessment process depends on how effectively the results are reported and what the organization then does with those results.

TRUE

To ensure the independence of the team members, a consultant or another external party must conduct the fraud risk assessment.

FALSE

Fraudulent customer payments, collusion between contractors, corporate espionage, and hacking schemes are all fraud risks pertaining to which of the following categories?

External Fraud

When performing a fraud risk assessment, the fraud examiner should only designate an area as high-risk if the assessment has conclusively revealed that fraud is occurring there

False

_____________ controls are designed to stop something bad from happening before it occurs, and _____________ controls are designed to identify something bad that has already occurred.

Preventive; detective

In addition to the specific risks related to each of the primary categories of fraud, the fraud risk assessment team should consider:

All of the above

In response to a risk identified during a fraud risk assessment, management decides to implement appropriate countermeasures, such as prevention and detection controls. This response is known as:

Mitigating the risk

The fraud risk assessment team should include:

All of the above

Which of the following individuals would generally be the BEST choice for a sponsor for a fraud risk assessment?

An independent audit committee member

What is the objective of a fraud risk assessment?

To help an organization identify what makes it most vulnerable to fraud

The individuals conducting the fraud risk assessment should incorporate their existing biases regarding employees and processes into their assessment of overall fraud risk.

FALSE

A fraud risk assessment report should reflect the assessment team’s subjective perspective and opinions that were formed during the assessment engagement.

FALSE

The fraud risk assessment process should be conducted covertly so that assessment team members can get an accurate picture of what occurs in the business.

FALSE

In response to a risk identified during a fraud risk assessment, management decides to purchase a bond to help protect the company against the associated risk of loss. This response is known as:

Transferring the risk

Which of the following is FALSE regarding the communication of the fraud risk assessment process?

The communication should be limited to management and the board.

Which of the following is TRUE regarding a fraud risk assessment?

All of the above

______________ is a process aimed at proactively identifying and addressing an organization’s vulnerabilities to internal and external fraud.

A fraud risk assessment

During an audit, auditors should validate that the organization is appropriately managing the moderate-to-high fraud risks identified in the fraud risk assessment. Ways to do so include:

All of the above

The fraud risk assessment team might include:

All of the above

During a fraud risk assessment, the assessment team should consider the way employees make decisions, behave, or treat others and assess how those actions affect the company’s vulnerability to fraud.

TRUE

Fraud risks that remain after the effect of internal controls are considered inherent risks.

FALSE

When identifying the inherent fraud risks that could apply to the organization, the fraud risk assessment team should specifically discuss the potential for management to override controls, as well as the risk of regulatory and legal misconduct.

TRUE

The size of the fraud risk assessment team will depend on the size of the organization and the methods used to conduct the assessment.

TRUE

When deciding on techniques to use as part of a fraud risk assessment, the assessment team should consider what methods are already commonly and effectively used throughout the organization.

TRUE

Which of the following is an effective way to help prevent fraud through an organization’s performance measurement and management programs?

Including ethics-based metrics as a component of performance evaluations

A detailed anti-fraud policy that includes specific examples of fraud can give management legal grounds to investigate and punish violators.

TRUE

To reinforce an anti-fraud culture, management should:

All of the above

Which of the following should be emphasized in an employee reporting program? I. Fraud, waste, and abuse occur in only a few companies. II. The company actively encourages employees with information to disclose it. III. The employee's name must be disclosed. IV. The report need not be made to one's immediate supervisor.

II and IV

A detailed anti-fraud policy should outline the types of actions that are considered to be fraud. Which of the following should be included on that list?

All of the above

An organization’s whistleblower procedures should be made public so that individuals both inside and outside of the organization are aware of the appropriate channels for reporting misconduct.

TRUE

There are specific anti-retaliation laws in every country that protect whistleblowers against adverse action for reporting misconduct in the workplace.

FALSE

Which of the following controls can help minimize the pressures that might lead an employee to commit fraud?

All of the above

Management of Blue Top Inc. is implementing a formal background check policy for its employees. Which of the following is NOT a best practice that should be implemented as part of this initiative?

Placing a low priority on checking professional references, since most people do not provide bad references

For analytical review procedures performed during a financial statement audit to be most effective in uncovering fraud, the scheme must materially impact the financial statements.

TRUE

Which of the following components would NOT be present in a well-designed organizational structure?

Reporting lines that are informally established and communicated

The anti-retaliation component in a whistleblower policy should do all of the following EXCEPT:

Describe the penalties that people may encounter for refusing to provide tips.

Which of the following mechanisms can be used to help increase the perception of detection in an organization?

All of the above

In developing an anti-fraud policy, it is good practice for an organization’s management to consult legal counsel to ensure that every fraud allegation is managed uniformly.

TRUE

Components necessary to develop, implement, and manage a comprehensive ethics program include:

All of the above

Of the following, which is the MOST EFFECTIVE method of preventing fraud?

Increasing perception of detection

Most experts agree that it is much easier to detect fraud than it is to prevent it.

FALSE

Which of the following is NOT a topic that should be covered in employee anti-fraud training?

Specific controls and procedures that the organization uses to detect fraud

Managers should be instructed to observe employees' lifestyles for warning signs of fraud, and employees should know that supervisors are watching for unexplained or suspicious anomalies of this nature.

TRUE

An entity’s corporate culture is MOST EFFECTIVELY assessed by using a checklist of initiatives to make sure all the elements of a strong tone at the top are in place.

FALSE

Unless specific unacceptable conduct is detailed in an anti-fraud policy, there can be legal problems in terminating a dishonest employee.

TRUE

Which of the following is FALSE regarding employee anti-fraud education?

Fraud awareness training efforts should be restricted to formal educational mechanisms.

Requiring employees in certain functions (e.g., accounting clerks) to periodically rotate job duties can be an effective anti-fraud measure.

TRUE

Which of the following is TRUE regarding an organization’s ethics policy?

In developing the policy, management should consider how various members of the organization define success.

Establishing and communicating the proper flow of information to everyone in the organization is an essential component of a fraud prevention program.

TRUE

Which of the following is NOT a recommended way for management to respond to incidents of fraud within an organization?

Allowing all employees one warning before termination

Proactive audit procedures, such as fraud assessment questioning and surprise audits, can help demonstrate management’s intention to aggressively look for fraud.

TRUE

When establishing a whistleblower policy, organizations should emphasize that it applies to all employees, regardless of their positions or seniority.

True

Communications regarding the organization's anti-fraud policy should be presented in a positive, non-accusatory manner

True

Communications regarding the organization's anti-fraud policy should be presented in a positive, non-accusatory manner

TRUE

Which of the following is an effective method of increasing the perception of detection?

All of the above

According to best practices, which of the following should be included in a formal whistleblower policy?

All of the above

Surprise audits can be effective in both preventing and detecting fraudulent conduct.

TRUE

Having an auditor ask employees questions such as, "Has anyone ever asked you to do anything that you felt was illegal or unethical?" can be an effective method of uncovering fraud within an organization.

TRUE

In countries with limited legal protections for whistleblowers, employment laws might be used as a framework to protect employees when they encounter retaliation for reporting workplace misconduct.

TRUE

Failing to properly supervise all assistants and others who are delegated work on a fraud examination engagement is a violation of the ACFE Code of Professional Ethics.

TRUE

During a fraud examination, John, a Certified Fraud Examiner (CFE), becomes aware of a situation that might appear as though he has a conflict of interest even though there is no actual conflict. To address the situation, John’s BEST course of action is to:

Immediately disclose the situation to company management

As part of their responsibilities under the ACFE Code of Professional Ethics, in collecting evidence, fraud examiners must:

All of the above